The Community Reinvestment Act: An Economic Analysis

Abstract

The Community Reinvestment Act ("CRA") provides, innocuously enough, that federal bank supervisors must assess how a depository institution (a bank or savings association) serves the credit needs of its "entire community, including low- and moderate-income neighborhoods," consistent with safe and sound operation. The supervisors must "take such record into account" in evaluating applications to acquire deposit facilities. For many years after its adoption in 1977, the CRA was little more than a vague statement of principle without much real-world effect. In 1989, however, Congress greatly enhanced the CRA's impact as part of the comprehensive banking legislation of that year. This Article offers a preliminary economic analysis of the CRA in its new, post-1989 manifestation.